March Madness in Wall Street: (What) Does the Market Learn from Stress Tests?

By Marcelo Fernandes, Deniz O Igan, Marcelo Pinheiro

December 23, 2015

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Format: Chicago

Marcelo Fernandes, Deniz O Igan, and Marcelo Pinheiro. March Madness in Wall Street: (What) Does the Market Learn from Stress Tests?, (USA: International Monetary Fund, 2015) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Annual stress tests have become a regular part of the supervisors’ toolkit following the global financial crisis. We investigate their capital market implications in the United States by looking at price and trade reactions, information asymmetry and uncertainty indicators, and bank activities. The evidence we present supports the notion that there is important new information in stress tests, especially at times of financial distress. Moreover, public disclosure seems to help reduce informational asymmetries. Importantly, public disclosure of stress test results (and methodology) does not seem to have reduced private incentives to generate information or to have led to distorted incentives.

Subject: Banking, Financial institutions, Financial sector policy and analysis, Stocks, Stress testing

Keywords: Abnormal returns, Bank, Capital plan, Capital requirements, CCAR capital, CCAR stress tests, DFAST exercise, Europe, Federal Reserve object, Federal Reserve's decision, Firm, Global, Information, Market functioning indicator, Market participant, Market reaction, North America, Public disclosure, Result, Results release, Stocks, Stress test result, Stress testing, WP

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/271
Stock No:

WPIEA2015271
ISBN:

9781513537405
ISSN:

1018-5941

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